Minimum wage

The movement for minimum wages was first motivated as a way to stop the exploitation of workers in sweatshops, by employers who were thought to have unfair bargaining power over them. Over time, minimum wages came to be seen as a way to help lower-income families. Modern national laws enforcing compulsory union membership which prescribed minimum wages for their members were first passed in New Zealand in 1894.^[5] Although minimum wage laws are now in effect in many jurisdictions, differences of opinion exist about the benefits and drawbacks of a minimum wage. Additionally, minimum wage policies can be implemented through various methods, such as directly legislating specific wage rates, setting a formula that adjusts the minimum wage based on economic indicators, or having wage boards that determine minimum wages in consultation with representatives from employers, employees, and the government.^[6]


Supply and demand models suggest that there may be employment losses from minimum wages; however, minimum wages can increase the efficiency of the labor market in monopsony scenarios, where individual employers have a degree of wage-setting power over the market as a whole.^[7][8][9] Supporters of the minimum wage say it increases the standard of living of workers, reduces poverty, reduces inequality, and boosts morale.^[10] In contrast, opponents of the minimum wage say it increases poverty and unemployment because some low-wage workers "will be unable to find work ... [and] will be pushed into the ranks of the unemployed".^[11][12][13]

Minimum wage laws affect workers in most low-paid fields of employment^[19] and have usually been judged against the criterion of reducing poverty.^[115] Minimum wage laws receive less support from economists than from the general public. Despite decades of experience and economic research, debates about the costs and benefits of minimum wages continue today.^[19]


Various groups have great ideological, political, financial, and emotional investments in issues surrounding minimum wage laws. For example, agencies that administer the laws have a vested interest in showing that "their" laws do not create unemployment, as do labor unions whose members' finances are protected by minimum wage laws. On the other side of the issue, low-wage employers such as restaurants finance the Employment Policies Institute, which has released numerous studies opposing the minimum wage.^[116][117] The presence of these powerful groups and factors means that the debate on the issue is not always based on dispassionate analysis. Additionally, it is extraordinarily difficult to separate the effects of minimum wage from all the other variables that affect employment.^[34]


Studies have found that minimum wages have the following positive effects:


Studies have found the following negative effects:


A widely circulated argument that the minimum wage was ineffective at reducing poverty was provided by George Stigler in 1949:


In 2006, the International Labour Organization (ILO) argued that the minimum wage could not be directly linked to unemployment in countries that have suffered job losses.^[2] In April 2010, the Organisation for Economic Co-operation and Development (OECD) released a report arguing that countries could alleviate teen unemployment by "lowering the cost of employing low-skilled youth" through a sub-minimum training wage.^[145] A study of U.S. states showed that businesses' annual and average payrolls grow faster and employment grew at a faster rate in states with a minimum wage.^[146] The study showed a correlation, but did not claim to prove causation.


Although strongly opposed by both the business community and the Conservative Party when introduced in the UK in 1999, the Conservatives reversed their opposition in 2000.^[147] Accounts differ as to the effects of the minimum wage. The Centre for Economic Performance found no discernible impact on employment levels from the wage increases,^[148] while the Low Pay Commission found that employers had reduced their rate of hiring and employee hours employed, and found ways to cause current workers to be more productive (especially service companies).^[149] The Institute for the Study of Labor found prices in minimum wage sectors^[c] rose faster than other sectors, especially in the four years after its introduction.^[104] Neither trade unions nor employer organizations contest the minimum wage, although the latter had especially done so heavily until 1999.


In 2014, supporters of minimum wage cited a study that found that job creation within the United States is faster in states that raised their minimum wages.^{[125][150][151]} In 2014, supporters of minimum wage cited news organizations who reported the state with the highest minimum-wage garnered more job creation than the rest of the United States.^{[125][152][153][154][155][156][157]}


In 2014, in Seattle, Washington, liberal and progressive business owners who had supported the city's new $15 minimum wage said they might hold off on expanding their businesses and thus creating new jobs, due to the uncertain timescale of the wage increase implementation.^[158] However, subsequently at least two of the business owners quoted did expand.^[159][160]


With regard to the economic effects of introducing minimum wage legislation in Germany in January 2015, recent developments have shown that the feared increase in unemployment has not materialized, however, in some economic sectors and regions of the country, it came to a decline in job opportunities particularly for temporary and part-time workers, and some low-wage jobs have disappeared entirely.^[161] Because of this overall positive development, the Deutsche Bundesbank revised its opinion, and ascertained that "the impact of the introduction of the minimum wage on the total volume of work appears to be very limited in the present business cycle".^[162]


A 2019 study published in the American Journal of Preventive Medicine showed that in the United States, those states that have implemented a higher minimum wage saw a decline in the growth of suicide rates. The researchers say that for every one dollar increase, the annual suicide growth rate fell by 1.9%. The study covers all 50 states for the years 2006 to 2016.^[163]


According to a 2020 US study, the cost of 10% minimum wage increases for grocery store workers was fully passed through to consumers as 0.4% higher grocery prices.^[164] Similarly, a 2021 study that covered 10,000 McDonald's restaurants in the US found that between 2016 and 2020, the cost of 10% minimum wage increases for McDonald's workers were passed through to customers as 1.4% increases in the price of a Big Mac.^[165][166] This results in minimum wage workers getting a lesser increase in their "real wage" than in their nominal wage, because any goods and services they purchase made with minimum-wage labor have now increased in cost, analogous to an increase in the sales tax.^[167]


According to a 2019 review of the academic literature by Arindrajit Dube, "overall, the most up to date body of research from US, UK and other developed countries points to a very muted effect of minimum wages on employment, while significantly increasing the earnings of low paid workers."^[110]


According to a 2021 study "The Minimum Wage, EITC, and Criminal Recidivism" a minimum wage increase of $0.50 reduces the probability an ex-incarcerated individual returns to prison within 3 years by 2.15%; these reductions come mainly from recidivism of property and drug crimes.^[168]

Surveys of economists[edit]

There used to be agreement among economists that the minimum wage adversely affected employment, but that consensus shifted in the early 1990s due to new research findings. According to one 2021 assessment, "there is no consensus on the employment effects of the minimum wage."^[169]


According to a 1978 article in the American Economic Review, 90% of the economists surveyed agreed that the minimum wage increases unemployment among low-skilled workers.^[170] By 1992 the survey found 79% of economists in agreement with that statement,^[171] and by 2000, 46% were in full agreement with the statement and 28% agreed with provisos (74% total).^[172][173] The authors of the 2000 study also reweighted data from a 1990 sample to show that at that time 62% of academic economists agreed with the statement above, while 20% agreed with provisos and 18% disagreed. They state that the reduction on consensus on this question is "likely" due to the Card and Krueger research and subsequent debate.^[174]


A similar survey in 2006 by Robert Whaples polled PhD members of the American Economic Association (AEA). Whaples found that 47% respondents wanted the minimum wage eliminated, 38% supported an increase, 14% wanted it kept at the current level, and 1% wanted it decreased.^[175] Another survey in 2007 conducted by the University of New Hampshire Survey Center found that 73% of labor economists surveyed in the United States believed 150% of the then-current minimum wage would result in employment losses and 68% believed a mandated minimum wage would cause an increase in hiring of workers with greater skills. 31% felt that no hiring changes would result.^[176]


Surveys of labor economists have found a sharp split on the minimum wage. Fuchs et al. (1998) polled labor economists at the top 40 research universities in the United States on a variety of questions in the summer of 1996. Their 65 respondents were nearly evenly divided when asked if the minimum wage should be increased. They argued that the different policy views were not related to views on whether raising the minimum wage would reduce teen employment (the median economist said there would be a reduction of 1%), but on value differences such as income redistribution.^[177] Daniel B. Klein and Stewart Dompe conclude, on the basis of previous surveys, "the average level of support for the minimum wage is somewhat higher among labor economists than among AEA members."^[178]


In 2007, Klein and Dompe conducted a non-anonymous survey of supporters of the minimum wage who had signed the "Raise the Minimum Wage" statement published by the Economic Policy Institute. 95 of the 605 signatories responded. They found that a majority signed on the grounds that it transferred income from employers to workers, or equalized bargaining power between them in the labor market. In addition, a majority considered disemployment to be a moderate potential drawback to the increase they supported.^[178]


In 2013, a diverse group of 37 economics professors was surveyed on their view of the minimum wage's impact on employment. 34% of respondents agreed with the statement, "Raising the federal minimum wage to $9 per hour would make it noticeably harder for low-skilled workers to find employment." 32% disagreed and the remaining respondents were uncertain or had no opinion on the question. 47% agreed with the statement, "The distortionary costs of raising the federal minimum wage to $9 per hour and indexing it to inflation are sufficiently small compared with the benefits to low-skilled workers who can find employment that this would be a desirable policy", while 11% disagreed.^[179]